The proposals will be discussed at the Liberal Democrats' spring conference next week.

Former Liberal Democrat health minister Norman Lamb set up the panel last year and it includes Mike Barton, the Chief Constable of Durham Constabulary, Professor David Nutt, the former chair of the Advisory Committee on the Misuse of Drugs, and Niamh Eastwood, executive director of the drugs charity Release.

In the report they said: “Drug policy to date has (almost) always been driven by political and ideological agendas that have ignored scientific, public health and social policy norms.

“We are fully aware of the health harms associated with cannabis use, but contend that a rational policy must pragmatically manage the reality of use as it currently exists, rather than attempt to eradicate it using punitive enforcement.”

It could lead to the Liberal Democrats becoming the first British political party to back the legalisation of cannabis sales.

Tim Farron, the party's leader, said: “We need a new, smarter approach and I welcome this report ahead of the debate at spring conference,” he said.

“It is waste of police time to go after young people using cannabis and ludicrous to saddle them with criminal convictions that can damage their future careers.

“A legal market would allow us to have more control over what is sold, and raise a considerable amount in taxation.

“I have always said that we must have an evidence-led approach to drugs law reform, and this report should be taken seriously. Britain has to end our failed war on drugs. The status quo causes huge damage and we urgently need reform.”